Nakheel Can’t Charge for Palm Island Beach, Regulator Says

Dec. 28 (Bloomberg) -- Nakheel PJSC, Dubai’s largest
property developer by assets, doesn’t have the right to deny
residents of a palm-shaped island access to communal facilities
by turning them into exclusive clubs, according to the emirate’s
property regulator.

Nakheel posted leaflets earlier this month telling
residents at the Palm Jumeirah they were banned from using the
property’s beach, swimming pools and gyms unless they pay an
additional 5,000 dirhams ($1,360) per household.

“By law, no one can stop an owner or a registered tenant
from using the communal areas once they have paid service
fees,” Marwan bin Ghalita, chief executive officer of Dubai’s
Real Estate Regulatory Agency, said in an interview yesterday.
“If you bought something based on an agreement with a
developer, he can’t change it.” A spokesman for Nakheel
declined to comment.

Dubai developers are looking at new ways of generating
income after the global credit crisis left many of them short of
funding to complete projects across the emirate. Nakheel has
incurred 78.6 billion dirhams in losses since the crisis began
in the third quarter of 2008.

Nakheel’s staff distributed membership application forms
showing that Palm Jumeirah’s residents will have to pay the
additional fees from Jan. 1. Non-residents will be charged
12,000 dirhams, or as much as 200 dirhams a day.

“People want something which they are not entitled to,”
Nakheel Chairman Ali Rashed Lootah was cited as saying in
Arabian Business on Nov. 23, following protests over the fees.
He told the newspaper that Nakheel had checked with the
regulator before proceeding with its plans.

Clubhouses, Gyms

Nakheel, which owns the clubhouses between the shoreline
buildings, can charge residents for the use of facilities and
services that aren’t specified in their contracts such as
poolside sun beds, towels, showers and changing rooms, bin
Ghalita said. If the developer wants to block residents from
entering the clubhouses where gyms are located, it would have to
provide gyms inside the apartment buildings, bin Ghalita said.

The developer and the Homeowners’ Association will soon
reach an agreement that will resolve the standoff, according to
bin Ghalita. Nakheel and other developers are in the process of
submitting blueprints of their buildings to RERA to establish
and define communal areas.

‘No Overpaying’

“We want to make sure that all non-communal areas aren’t
included in the service charges, so owners won’t overpay,” bin
Ghalita said. “That’s why we are taking our time to subdivide
all of the buildings,” he said.

Nakheel charges residents service charges based on the size
of their apartments, said Rakesh Sharma, a property consultant
at RBA Real Estate, which manages properties on the shoreline.
The fees amount to 25 dirhams per square foot.

At that rate, a 1,646 square-foot (153 square-meter) two-bedroom apartment currently advertised on Palm Jumeirah would
command about 41,000 dirhams a year in service fees, according
to Bloomberg calculations. A property of that size on the palm
would typically cost about 110,000 dirhams a year to rent.

Some homeowners say that developers are inflating the fees
and using the charges as an additional source of revenue. The
formation of homeowners associations should resolve the issue as
owners would be in charge of the accounts and could manage the
costs, RERA’s CEO said.

Landlord’s Responsibility

Tenants who are barred from using the facilities at Palm
Jumeirah because their landlords failed to pay service fees may
be allowed to withhold their rent, bin Ghalita said. Instead,
they could pay the developer directly after consulting RERA, he
said.

“Tenants have contracts and paying service fees is the
responsibility of the landlord,” bin Ghalita said.

Several members of the island’s homeowners association
declined to comment when contacted by Bloomberg today.

In the past, Nakheel derived most of its income by selling
properties before they were built. It also sold plots of land to
smaller competitors after providing infrastructure such as
roads, water, sewage and electricity. The company, which was
forced to suspend work on two other man-made islands after the
credit crisis, is trying to increase recurring income from
rentals and shopping malls.